Obamacare discourages some from working, and that’s OK

Opinion: Means-testing is a thoroughly conservative idea

Obamacare adds to already high implicit marginal tax rates for working people, according to Casey Mulligan’s calculation. But it does give them health insurance.

Some high-profile Republicans are outraged (on the outside but probably turning cartwheels on the inside) about the conclusion by the Congressional Budget Office that a few million Americans will decide to quit their jobs or work fewer hours because they’ll be getting subsidized health insurance from the Affordable Care Act, commonly known as Obamacare.

Why would the supply of labor fall by the equivalent of 2 million full-time jobs? Because the subsidies are means-tested and phase out as family income rises. At some point, making one extra dollar could mean losing a subsidy worth thousands of dollars. Families would face a high implicit marginal tax.

For instance, consider a single mom with one child. If she earns $23,419 a year, 150% of the poverty rate, she’d get a subsidy of $3,198 for health insurance. But if she makes one dollar more, her subsidy would be reduced by a dollar. Together with payroll taxes and income taxes she’d owe, that’s more than a 100% marginal tax rate on that extra dollar of earnings.

Some people will rationally decide that it doesn’t pay to work more hours, or at all. Economist Casey Mulligan has figured that some people would actually be better off financially working 29 hours a week rather than 40 hours because of the high implicit marginal tax as the subsidy goes away.

This is not a surprise. It’s part of the design of Obamacare. It was a sop to fiscal conservatives, a trade-off designed to ensure that the ACA doesn’t bust the budget. The Republican alternative to Obamacare that was recently rolled out has the same work disincentives.

Means-testing Obamacare was done for fiscal reasons, but liberals had other reasons to think a few disincentives might be a good thing: Some people SHOULD work less, not only for their own sake but for ours as well.

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For instance, giving a 62-year-old cancer patient an incentive to retire now instead of waiting until 65 when Medicare kicks in is a good thing, for him and for the person who will get his job. In the same vein, giving a single mom an incentive to spend more time raising the kids rather than putting in 40 or 60 or 80 hours a week at work is also good for her, for her kids and for society.

Paid work isn’t the only virtue.

Here’s the thing missing from the furor abut the CBO report: Lots of things provide a disincentive to work: Low pay, lousy working conditions, lack of health-insurance coverage, long commutes, high child-care costs, higher effective tax rates. Not to mention the loss of government benefits as earned income rises.

In Europe, most social welfare benefits are provided universally to all, regardless of income or wealth. Health insurance, pensions, child-care subsidies, and public education are available to all. Universal coverage requires high taxes, however, because it’s expensive to subsidize everyone’s health care, child care and education. But they’ve decided that living in a civilized society is worth the cost.

In the low-tax United States, policy makers have generally decided to means-test most benefits as a way of reducing costs to the taxpayer. Only the poor or near-poor are eligible for welfare, food stamps, Medicaid, the earned income tax credit, child tax credits, and so forth.

A family that could earn thousands of dollars more by putting in more effort will do so, but one that could conceivably earn only a little more might restrict their work hours to avoid going over the limit. The majority would work as hard as they can, but a few would do the math and opt out.

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